Rising oil prices expected to wipe $500m off airline profits
Airlines will see their global profit shrink by $500m this year due to rising oil prices, the International Air Transport Association said today.
It said it expects airlines to turn a global profit of $3bn for the year, $500m less than it was forecasting last December.
Average oil prices are expected to rise from $99 a barrel to $115 this year, but IATA said the avoidance of a significant worsening of the Eurozone crisis, the improvement in the US economy, cargo market stabilization and slower than expected capacity expansion had prevented a more significant downgrade.
IATA said the outlook for European airlines – which face by far the most difficult situation among the regions – remains unchanged from December with the expectation of a $600m net loss.
Many European economies are in deep recession, it said, and at the same time air travel in the region is being hit by taxation and the cost of the EU’s Emissions Trading Scheme.
"2012 continues to be a challenging year for airlines. The risk of a worsening Eurozone crisis has been replaced by an equally toxic risk – rising oil prices," said IATA director general Tony Tyler. "Already the damage is being felt with a downgrade in industry profits to $3.0 billion."
Airline performance is closely tied to global GDP growth. Historically, when GDP growth drops below 2.0%, the global airline industry returns a collective loss. "With GDP growth projections now at 2.0% and an anemic margin of 0.5%, it will not take much of a shock to push the industry into the red for 2012," warned Tyler.
IATA revised upwards its estimated profits for 2011 to $7.9bn from the previously forecast $6.9 billion. This was primarily owing to the much better than expected performance of China’s airlines.
By Linsey McNeill
Linsey McNeill
Editor Linsey McNeill has been writing about travel for more than three decades. Bylines include The Times, Telegraph, Observer, Guardian and Which? plus the South China Morning Post. She also shares insider tips on thetraveljournalist.co.uk
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